Conference 7.286::dcu

341.0. "Depositers stage run on thrift in Fairhaven" by ULTRA::HERBISON (B.J.) Sat Oct 26 1991 11:32

        The following article was the lead story of the Business section
        of the Saturday 26 October 1991 Boston Globe (page 16).  It
        shows what can happen when the board of directors of a credit
        union is removed, even when, like DCU, there is no cause for
        panic.

        It has been stated in this conference several times that the
        people actively working to remove the board believe that DCU is
        in good financial state and will remain safe and stable even if
        the board is removed, but it is important to keep saying that
        message so that everyone hears it.  It wouldn't hurt to place
        the message at the start and end of 330.9 and anything else
        distributed for the special meeting (I wish I had come up with
        this comment before the `final version' was posted).

        					B.J.


               Depositors stage run on Fairhaven thrift

                 By Matt Carroll and Mitchell Zuckoff
                              Globe Staff

        FAIRHAVEN -- In a sign of just how anxious people have become
        about banks, hundreds of depositors withdrew more than $4
        million from the Fairhaven branch of the Bridgewater Credit
        Union over the last two days after hearing rumors that it was in
        financial trouble.

        But state banking commissioner Michael C. Hanson denied there
        were any problems at the state's second largest credit union.

        ``Their money is safe, the credit union is open and it's going
        to stay open,'' Hanson said.

        The run started Thursday, apparently sparked by Hanson's
        decision a week ago to dismiss the credit union's board of
        directors and its president, James Tobey.

        ``It was a competency issue,'' said Hanson, who used powers
        granted to him under state law.  He declined to elaborate.

        Assurances from officials that the institution was solvent did
        little to assuage the anxiety of hundreds of people who waited
        for four hours or more on Thursday and yesterday to close their
        accounts at a branch in the CVS plaza on Route 6.

        The lie at one point curled around the parking lot and to the
        highway about 100 yards away.  By the middle of the afternoon
        about 150 people stood in line.  Many said they took the day off
        from work to get their cash.

        When asked, many seemed not to know what had caused the run or
        to even care what the problem was.  Some mentioned nearby Rhode
        Island, where credit unions and banks were closed following the
        failure last January of their private insurer, the Rhode Island
        Share and Deposit Indemnity Corp.  Others said they were jittery
        because of problems with banks in general.  Other credit unions,
        including Progressive Consumers Federal Credit in Malden and
        Barnstable Community Federal have had severe financial problems.

        But all agreed on one point:  They wanted to pull their money
        out and put it somewhere else.  Depositors were given up to
        $2,000 in cash from their accounts; withdrawals above that
        amount were made in the form of cashier's check drawn on
        Fairhaven National Bank.

        ``Let's put is this way:  You don't believe nothing no more. 
        You just do what you have to do,'' said Ernest M. Santos of
        Achusnet, who had been waiting 3 1/2 hours by yesterday
        afternoon.

        Kyle E. Andrews of Marion, a warehouse manager, said he had
        heard about problems and took time off from work to get out his
        money, which included cash he had been saving to pay the closing
        costs of buying a new house.  ``I just decided to come get the
        money out.  I didn't want to see like what happened down in
        Rhode Island,'' he said.

        Michele M. Haarala of Freetown, echoing many others said:  ``I
        don't have much in there, but what I have I need.  I can't take
        the chance.''

        The credit union's president was replaced on Monday by Audrey
        A. Phinney, who had been president of the Wollaston Credit
        Union.  She emphasized that the 50-year-old credit union, which
        has $260.5 million in assets and 63 employees, was in good
        financial shape.

        ``Unfortunately, the rumor started that the institution would
        close,'' she said.  ``In no way is the institution about to
        close.  We're solid and profitable.''

        She also noted that individual accounts are insured for $250,000
        and joint accounts for $500,000 through the Massachusetts Share
        Insurance Corp.

        On Thursday, Hanson authorized the credit union to remain open
        until 8 p.m., three hours later than its normal closing time, to
        serve customers who wanted to withdraw their money.  The
        commissioner's office also made arrangements with the Federal
        Reserve to ensure the credit union had enough money on hand to
        meet all of the withdrawal requests.  The Fairhaven branch will
        be open today from 9 a.m. until noon.

        Hanson would say only that the dismissal of the former credit
        union's officers stemmed from ``a disagreement between the board
        and the commissioner's office, and we win those disagreements. 
        It was our job to protect the members of the credit union, and
        we've done that here.''

        Bridgewater Credit Union is second in size to Brockton Credit
        Union among Massachusetts credit unions.  In addition to
        Fairhaven, it has branches in Bridgewater, its main office, as
        well as Taunton and Plymouth.  There were no runs at the other
        branches, Phinney said.

    
    RE: .0
    
    Sounds like a poor job of the State in communicating what was going on. 
    These types of actions, when taken by state or federal agencies in the
    past, have usually been part of a "takeover" by that agency.  From what
    the article said (or didn't say), that doesn't appear to be the case
    there.  Makes you really wonder what this difference was with the
    Board.
    
    In DCU's case, the actions of the current Board resulted in a mini-run
    in August and September.  Runs are the result of a loss of confidence
    and trust in an institution.  The removal of the current BoD and new
    elections is a membership initiative and very different from a
    government intervention.  My opinion is that the run was caused by the
    government's involvement in the removal, not the removal itself.
    
    Let's face it though, anytime people don't know what's going on at a
    place that holds their money, it does not take much to spook them.  The
    fact the the current BoD has been less than forthright with important
    financial information concerning DCU is more of a threat to create a
    run than is the removal of the Board.

Re: .0

Also, notice that the Board  AND the President are being dismissed.  I have
heard no talk of dismissing Chuck who, as the "executive in charge" is
truly responsible for the credit union's operation.

Again, the board is more of an overseer, and we can afford to not make any
large Real Estate loans for a month or two }8-)}

.0>                                    ..."a disagreement between the board
.0>        and the commissioner's office, and we win those disagreements. 
.0>        It was our job to protect the members of the credit union, and
.0>        we've done that here.''


Now THERE'S a breath of fresh air.

RE:.0 by ULTRA::HERBISON "B.J."

> ... hundreds of depositors withdrew more than $4 million from the Fairhaven 
> branch of the Bridgewater Credit Union over the last two days after hearing 
> rumors that it was in financial trouble.

> ... that individual accounts are insured for $250,000 and joint accounts 
> for $500,000 through the Massachusetts Share Insurance Corp.
                           ^^^^^^^^^^^^^

State insurance funds are less safe than federal insurance.  (DCU has
federal insurance.)

State insured CU's,  S&L's and banks have failed in many states,  bringing
down the insurance fund,  and leaving lots of losses for depositors.  I
personally wouldn't keep any money in a state insured institution.


Phil

    
    I wonder why Massachusetts guarantees these accounts for $250K when the
    federal government only insures up to $100K?  I hope the state
    agencies that make these guarantees are well funded because I know
    where the money is going to come from should they need more. :-(

    re: .1
    
    Get real!  The "mini-run" was caused by the checking fees.  The board
    mis-calculated and people closed their accounts.  They weren't
    "spooked".

    
    RE: .6
    
    OK, I'll get realer.  Did the checking impose themselves upon the DCU
    membership?  Of course not.  They were approved by the BoD.  But then
    your statement appears to state this.  How many mis-calculations
    by the BoD can DCU (and we) afford?
    

    Of course the board approved the fees, and they blew it.  It's my
    belief that there would never have been enough support to call a
    special meeting if they had not.
    
    FREE CHECKING is a marketing approach that works.  DCU started with
    this (and others) service and built itself into a sizable institution. 
    Management knew that some folks would remove their money when the fees
    were instituted, and that some would be "loyal" to the institution and
    keep their checking.  It was a business risk that they took.
    
    My free advice to prospective candidates for directorship:  FREE
    CHECKING will get you lots of votes.  I do not say that I would
    recommend any candidate that runs on this issue, only that it is very
    attractive to voters.

    
    RE: .8
    
>    Of course the board approved the fees, and they blew it.  It's my
>    belief that there would never have been enough support to call a
>    special meeting if they had not.
    
    Again, very inter-related topics.  The need for the new fees does not
    exist if the BoD hadn't lost millions of DCU equity.  But it is
    interesting how millions can be lost, but not have a persons name on it, and
    nobody notices.  Let's make it more personal.  Right now DCU is about
    $9,000,000 in the hole on these "investments" (and growing due to
    lawyer costs).  Assuming there are 88,000 DCU members, if DCU
    liquidated and every member got a piece of their equity that DCU had
    been holding for them, we would each be getting $102.27 LESS due to
    the loss on these investments.  Of course this also assumes we can sell
    the Cape property for $3 million.
    
    As for the no new fees platform...  Anybody proposing new fees would
    have to explain why an already profitable credit union ($4.7 million
    without loan losses) needs even more profit.  Building up the equity in
    an institution is not something that is done overnight.  DCU's equity
    growth will do spectacularly without new fees and increased investment 
    in loans to the membership.